This article is a response to Michael Suede´s Artcile “Against the gold standard“.
First of all, I would like to state that I am a BitCoin supporter and I also think that gold is and has been the best money around until some other thing is discovered. Regarding the gold standard , I have a problem with the word “standard” as I think that money should be provided by the free market and not being subject to any other standard or regulation appart from law (civil and trade laws) that would apply equally when providing and exchanging any other goods and services.
That being said, I think it is important to remark the economical nature of Gold and Bitcoins: Both of them are present goods. The fact that gold is tangible and BitCoins are intangible might be a relevant issue, but it is not something new at all. Software or trademarks are also present goods and they are not tangible. The most important thing about present goods regarding monetary utility is that they are not anyone else´s liability.
Since I believe Bitcoins are present goods, and considering the Theory of Economic Time (TTE) from the austrian economist Carlos Bondone, they would qualify as money. Conversely, currencies that are not present goods can only be credit. I totally agree whith Michael Suede on his previous article about Bitcoins when he says “In summary, Bitcoins are money because of the properties they have“. An explanation of why agree with him within the TTE theoretical framework can be found here. Austrians say that Bitcoins don´t qualify as money because they don´t comply with the Regression Theorem of Money from Mises, which is true, but the problem is that the Regression Theorem is a very unfortunate interpretation from Mises of Menger´s origin of money. Monetary utility, which is the need for liquidity, is valuable enough by itself, no need a link to anything else to have value.
I understand that Mises could not tolerate that fiat currencies (in fact credit currencies just as he realized) could be used the same way as commodity money, which was the “true money” on Mises perspective. But that was because he did not separate the concepts medium of exchange (currency) and present good used as medium of exchange (money). Currencies that are not present goods, can only be credit, and credit might be a currency, but it will never be money (understood as a present good) . A sound monetary theory has to be unmistakable clear on this: money ≠credit.
Now, regarding counterfeiting and fraud, I do not agree with Michael. From a theoretical point of view, fraud, theft and counterfeiting are not very relevant, specially when we talk about money or currency. Because all kinds of currency will always be subject to these risks, including Bitcoins. Also, any bearer currency such as Bitcoins or physical gold coins, are inherently sensitive to theft.
I also disagree with Michael regarding clearing services (i.e. limiting all transcations to P2P). I think it will be very hard for Bitcoins to have a wide success with no clearing services at all. Even transactions involving electronic currencies can be complex and expensive processes, which could certainly be simplified by clearing services. That would be financial institutions’ role, and I think that it could be perfectly done if all indebtness priveleges they currently have are removed. Bitcoins could be an excellent pressure to change these laws since they are best suited to work without these institutions, but I have no doubt that Bitcoins would perform better with those sound clearing services.
Also, not all the people have enough knowledge to handle all system security needed to protect bitcoins, and would prefer to ask for a custody service, even giving up anonimity but on the other hand improving security. A free market surely would cover all needs, and I think this need for security and the aforementioned need for clearing services will always exist.
Originally published at eleconomistaprudente.com on june 22, 2011.